U.S. Bankruptcy Filings Back Over 1,000,000?

Based on new data about filing trends in the first part of 2007, I have a prediction--there will be close to or even more than 1,000,000 U.S. bankruptcy filings in the 2007 calendar year. The folks at AACER have provided data showing that there were 72,945 bankruptcy filings during the month of March. That was 3,316 filings per day (measured by business days), a 7.3% increase from the previous month. That comes on the heels of a 17.6% increase in filings per day in February as discussed in a previous blog post. The per day filing figures for February and March 2007 are respectively 69.6% and 56.6% higher than one year previously. Bankruptcy filings are on the rise and dramatically so.

Extrapolating from these figures, we can make some guesses at where bankruptcy filings might end up for the 2007 calendar year. The AACER data show that there were 186,788 total bankruptcy filings from January - March 2007. If bankruptcy filings per day remain constant through the rest of the year, we will have 821,044 total filings. Of course, it is unlikely that filings per day will remain constant, especially when one considers the growth at the beginning of the year. If we assume that March's 7.3% growth rate will continue throughout the year, we will have 1,088,297 total bankruptcy filings in 2007. Neither assumption--no growth or a steady 7.3% growth--is likely to occur. For example, we know from a Credit Slips post by guest blogger Ronald Mann that bankruptcy filings historically hold steady or even slightly decline in the summer months. Perhaps the estimates are best viewed as outer boundaries with the expected outcome being just shy of 1,000,000 total filings. As a comparison, total bankruptcy filings were just shy of 1.6 million in for the twelve months ended June 30, 2005 (the last statistical year completely unaffected by the huge rush in filing) were 1,600,000.

In addition to the total number of filings, the mix of chapter 7 and chapter 13 cases is intriguing. For the first three months of 2006, 44.9% of all bankruptcy cases were chapter 13 cases. For the first three months of this year, that figure had dropped to 39.5%. The trend is moving back toward the historical 29.0% figure for the percentage of chapter 13s filed between 1995-2004.

The takeaway message is that both total bankruptcy filings and the chapter 7/chapter 13 ratio are moving back toward the levels they were before the 2005 changes in the bankruptcy law. The law made it more difficult and more expensive to file bankruptcy and tried to shuttle more bankruptcy filers into chapter 13. The 2005 changes may prove only a temporary change in the filing numbers. Many bankruptcy experts expected bankruptcy filings to head back toward their previous levels, but I am surprised by how quickly it is occurring.

The Associated Press also ran a story about AACER's numbers. For those interested in more detail, the AP story describes how AACER gathers its numbers.

Comments

[John Pottow]

Bob, I wonder which way the sub-prime metldown will cut on the 7/13 ratio. (I take as a given that it will contribute to a bump in total filings.) On the one hand, I'd think that the rule-of-thumb "13 to save the home" would tilt toward the 13s rising. But on the other hand, if the sub-primes track homes that are hopelessly overleveraged, then perhaps people will just bail in 7s....

[Railroaded]

I've recently been dismissed in a Chapter 13. I was affected by Hurricane Katrina and saw bankruptcy as a savior. Little did I know that my case was not in the "right hands". There is a 910 day period to be protected on a vehicle which is important if you are trying to keep your vehicle. After giving my attorney all of my info I was in formed I was was 5 days short of the time frame and my creditor contested the settlement. I went to the "Meeting of Creditors"(which is a joke) and my case was confirmed. After paying a few months of mangable payments confident my problems were sovled and in line. I was notified my payment to the Trustee would be almost double than my original agreement. My big question is what is the ratio of cases being dismissed within the first year since the new laws have been established.